Authors: Felix Martin
“Sounds fair so far.”
“Then you began to investigate these ideas that make up money—and especially the most important one: the concept of universal economic value. You explained that a dollar, or a pound, or a euro, or a yen is not a physical thing but a unit of measurement. You explained how some old Polish professor—”
“Witold Kula.”
“—that’s the one—had looked into the history of physical units of measurement and discovered that both the concepts they measure and the standards they embody have evolved over time. Like a good socialist, you even spoke admiringly of the great strides made by some international bureaucracy.”
“That’s right—the International Bureau of Weights and Measures.”
“But the useful part, if I understood you right, was old Professor Kula’s point that both concepts and the standards used to measure them are determined by the uses to which people put them. You made two points. The first was that the concept of universal economic value is just like a physical unit of measurement: the extent of its applicability, and what its standard should be, is properly determined by what it is used for. But the second was that universal economic value is also different from a physical unit of measurement. It is a property of the social rather than the physical world—it’s the central component of a technology for organising society, as you put it—so that its standard needs to be political as well.”
“Exactly. The right criteria for choosing its standard are not consistency and accuracy—as they are for a physical unit of measurement—but fairness, or political justice, or whatever you want to call the characteristic quality of a well-governed society.”
“Right. That was the philosophical part. Then you moved on to history.”
“Well: I did argue that there is evidence to support my claims about the nature of money. I claimed that it is because money’s central idea is that concept of universal economic value, and because the appropriate standard of value has to be a political one, that money as we know it today was first invented by the collision of the Mesopotamian inventions of literacy, numeracy, and accounting, with the notion of the equal social value of every member of the tribe that the primitive Dark Age Greeks had.”
“Ah yes. Well, you could be right about that—but it doesn’t seem to be that important if you aren’t. After all, money is still with us, so we can test your account of what it really is right here and now. How it was invented doesn’t really matter—and since we’ll never know, why worry?”
“That’s one way of looking at it—ever the philistine. But you’re right that the real test of my biography is how well it explains money today—and our problems with it, and how to start solving them. So carry on.”
“Well then, the history part. This is where the murder mystery began. You started out by praising the clarity of ancient Chinese monetary thought. You explained that their philosophers and emperors understood perfectly that money is a tool of government, and that the extent to which economic value is used to co-ordinate social activity, and the question of what the standard should be, are therefore to be determined solely by reference to how they contribute to the successful government of the country.”
“That’s right: to ‘peace and order in the sub-celestial realm’ as they more poetically put it.”
“Revolution, more like, if you ask me. But we’ll come to that in a moment. Anyway, then you told the story of Europe’s remonetisation in the Middle Ages. The real story here, you said, was a long-running battle between sovereigns and their subjects over the management of the standard. The Europeans, you seemed to be saying, were less concerned about the applicability of the concept of universal economic value—but they were very much concerned with what its standard was, because both sovereigns and subjects understood
only too well that making the pound worth more or less in terms of real goods and services meant the redistribution of wealth and incomes.”
“Exactly. And especially, redistribution to the sovereign from his subjects.”
“Right. Seigniorage. The story you told was that as the monetary economy grew, so there were more and more subjects interested in the question of the standard—since they didn’t want to pay excessive seigniorage to their sovereign. They complained about it a lot. They invented all kinds of clever arguments against it. They hired that French bishop to show why it was wrong. But none of it did much good.”
“Because there was no realistic alternative—so they had no way of forcing the sovereign’s hand.”
“Until, that is, some bright spark rediscovered banking, and with it a viable means of issuing private money on a monster scale.”
“Exactly. Turned out to be quite a profitable invention for everybody—but especially for the bankers. The sort of thing I bet you wish you’d thought of.”
“Touché. Anyway: once bankers had rediscovered the trick of issuing private money, the boot was on the other foot. Now it was the sovereigns and their seigniorage that were under pressure. This was an unstable situation—monetary insurrection, to use your metaphor. But with the foundation of the Bank of England, a way to secure a permanent peace was found—at least until recently.”
“The Great Monetary Settlement. You’ve got it. But forgive me for interrupting. Only, where’s the murder?”
“I can see you don’t read many detective stories. It’s just about to happen, of course—just when everyone is least expecting it. You see, up until now, everyone might have been arguing over whether the sovereign should manipulate the standard to raise seigniorage, and whether the bankers should be allowed to issue private money, and so on—but at least they all understood what money was. In terms of your ‘unconventional’ account of money, in other words, common sense still reigned. But just as your Great Monetary Settlement
was being struck, somebody murdered monetary common sense. What’s worse, having done away with the correct understanding of money, the wicked criminal buried the evidence and put in its place a seductive imposter—a view of money and economic value that looks and sounds awfully persuasive to ignoramuses like me, but one which according to you actually blinds our moral faculties, blunts our economic policies, and—much the most terrible of all—even gave us the banksters currently lording it over Wall Street and the City of London. And in true Hercule Poirot style, you revealed that the culprit was the very last person one would have suspected: none other than the most respected thinker in the land, John Locke.”
“Ah, I see.”
“And to cap it all, it was what aficionados of the genre call a perfect crime. Nobody noticed that the correct view of money had been swapped for the wrong one—so nobody accused Locke of murder. Quite the opposite, in fact—he seems to have gone down in history as a bit of a hero.”
“Absolutely. He did provide the intellectual basis of modern Liberal democracy, after all.”
“Right. But it’s at this point, I’m afraid to say, that your plot has a hole in it. You see, I’ll grant that John Locke might have been able to murder monetary common sense in the course of that particular debate about the recoinage—and even that the imposter he substituted was quite persuasive as a replacement. But given the rule of common sense up to that point—all those thinkers that you mentioned—how on earth did Locke manage to change everyone’s mind? I mean, I don’t care how influential John Locke was, how can he possibly have managed to fool everyone? Why didn’t people notice that his view of money was just wrong? No, I’m afraid your theory just doesn’t add up, Mr. Holmes.”
“Hang on a minute—you’re the detective here. I never said that this was a murder mystery—and I don’t think it is.
“John Locke was no murderer—he was the greatest philosopher of his age, one of the greatest of any age, and there can hardly be
any doubt that he was motivated by his sincere belief in the rightness of political Liberalism and constitutional government. But in trying to achieve this, he made a mistake. He was a doctor and a don—not a banker or a businessman—he wasn’t familiar with the world of finance. He thought the only way to guarantee that the Great Monetary Settlement didn’t turn into a giant boondoggle for bankers was to put the standard beyond their—or the sovereign’s—control. And that was what his political theory told him must be the case anyway.
“So Locke ended up with the right idea about politics—that it should be Liberal and democratic—but the wrong idea about the monetary standard—that it had to be fixed. John Law was the opposite. He had the right idea about the standard—that it needs to be flexible—but the wrong idea about politics—that absolute monarchy is the right system to determine its adjustment. Now Law really was a murderer—or at least a duellist—but in the world of ideas he was no more a criminal than Locke was. Both of them were trying to solve the political and economic problems presented by the growth of monetary society—and each of them got halfway to the right solution.”
“All right. But why was it Locke’s view of money that became the conventional one, then? Like I said: if it is so obviously mistaken, why didn’t anyone stand up and say, ‘all this that Locke’s saying isn’t true: money isn’t silver, it’s transferable credit!’? Or rather, why didn’t everyone believe Lowndes when he said that?”
“Ah! That is a good question. Part of the answer is because of Locke’s prestige, of course. To most people, Locke was a great authority, even if the financial experts didn’t think him one on money. Law was a maverick. But the main reason—and this is what explains your ‘perfect crime’—is more fundamental. It is that Locke felt that in order to arrive at the conclusion which he felt was necessary to protect the Great Monetary Settlement from itself—that the standard needed to be fixed—one had to understand money as silver and value as a property of the natural world. I explained what the practical consequences of that kind of reasoning have been for economic and financial sector policy, as well as for the ethical disabilities
of economics. But naturalistic reasoning of this sort has another effect as well.
“It’s well known to sociologists and anthropologists. Once people accept the idea of a particular set of social arrangements as a necessary fact of the natural world, rather than just a social contrivance, it becomes well nigh impossible for them to think critically about it—no matter how progressive they are, and no matter how morally wrong those social arrangements might be. History is full of examples. In the nineteenth century, there was a great fashion for ‘positive criminology,’ which claimed that felons could be identified by their physical attributes. It sounds bizarre to us today that anyone could believe that you could tell an anarchist by his ears, or a thief by the shape of his nose. But the point is that the people who believed all this had no vested interest in locking up people with unusual faces—they simply believed in the naturalistic explanation of criminality as a product of physiological factors. Likewise, ‘scientific racism’ was widely accepted as the truth in nineteenth-century America. The inferiority of non-white peoples could be ‘proved,’ it was believed, by physical differences. And again, it was the hallmark of a liberal outlook—not a reactionary one—to believe this kind of thing. The point is that naturalistic reasoning in the social sciences—claiming to explain social phenomena as objective truths of nature—is self-reinforcing. It spins social and political prejudices into a web of fake facts—and once the web has been spun, it is virtually impossible to escape. Or in terms of our Chinese proverb, naturalistic reasoning like Locke’s understanding of money is what fills the fishbowl with water.
“So when it comes to the eclipse of the correct view of money, I don’t think it’s fair to call it a murder, or John Locke a murderer, Monsieur Poirot—the verdict has to be one of accidental death. And as for the way in which the conventional view of money took over: you are right that if there had been a murder, that would have made it a perfect crime. But I’m afraid to say it’s really just a case of mistaken identity—albeit one driven by mass delusion.”
“All right,” said my friend cautiously, “a case of accidental death and mistaken identity it is, then. But in any case, isn’t the whole point
of your argument that the rumours of the death of monetary common sense had been greatly exaggerated? There was Law, like you just said—and more to the point, Bagehot, and Keynes, and Kindleberger and those other characters that you went on about. They kept common sense alive—at least on life support. Luckily for you, actually—since you wouldn’t have known about it otherwise. You may have moaned that the conventional understanding of money is behind the failings of macroeconomic and financial sector policy that got us into the current mess. But then you brightened up and argued that the way those neglected geniuses thought about money can show us the way out again. And if I understood you right, what you really meant by that was a lot of inflation and debt restructuring to fleece the capitalist rich and bail out the oppressed masses—coupled with a shake-up of the banking sector to make the Big Bang of the 1980s look like child’s play. So you don’t get off that easily. Even if I buy your argument that there’s something wrong with the conventional view of money and that it has led to some big mistakes, I still think your alternatives sound like a load of irresponsible, revolutionary claptrap.”
“Ah yes, I’d forgotten—the charge of fomenting revolution. Well, I think you’ve got me quite wrong there. I’ve argued that there are three basic policies that are suggested by the alternative view of money.
“The first relates to the management of the monetary standard. You’re right that one of the principal differences between the conventional view of money and the alternative view is that the monetary standard can, and indeed should, be deliberately managed. The conventional view implies that economic value is a natural fact. As such, the job of money and finance is to measure it—but not to influence it. The monetary standard is the fulcrum of the scales of political justice, as it were—and just like the fulcrum on a physical pair of scales, it has to be fixed in place in order to be accurate. Any redistribution required in order to even things up between different members of society should be achieved by taxing stuff away from the people on one side of the scales and doling it out to the people on the other—
or perhaps by making the process of accumulating stuff itself more equitable, so that redistribution of this sort isn’t needed.